January 28, 2019

Life Insurance, How Do You Pregame For Life?


Today you’re single. Tomorrow you’re dating. In one month you’re in love and within a year you’re engaged and looking at houses. What in the world just happened? Can you guess what happens next? We all have a good idea but how many of us know how prepared this couple is for their journey? If you’re not prepared, how do you go from being a hopeless romantic to addressing topics like protecting your family against the loss of your income with life insurance? Life happens fast and staying educated on your options is a great step in living a successful life.

In this article from Forbes, the author, Ryan, makes some good points about term life insurance and would likely suggest these newlyweds buy term insurance to protect their family. I too would make this recommendation for a few reasons. Young couples tend to have tight budgets and term insurance is more affordable than permanent insurance. Young couples are entering the phase of their life where they build wealth by buying a house, maxing out their retirement plan contributions, and possibly planning to add another branch to the family tree. Okay, that last one may drain more than it contributes to the pond, but kids are a common thread in families and preparing for their arrival beforehand is key to the family’s success. So yes, there is value in term insurance and it applies to businesses as well as families.

While I agree with the author’s belief that term insurance offers “piece of mind”, I also believe other forms of life insurance provide a different type of piece of mind that may be more suitable to your needs.

The article starts with a new family expecting their first child and it’s clearly written for a younger audience. By focusing on the benefits of term insurance for a young couple, the article overlooks the benefits permanent life insurance can offer a family that term insurance cannot. For example, how can you use term insurance to build tax-deferred cash value? You cannot. Can you draw against your term insurance policy to fund your kids’ education, a vacation, or a down payment on a new house? You cannot. How can you use term insurance to plan for your long term care funding? You cannot. If you own a business, how do you use a term policy to build cash value to support the business? You cannot. But with a permanent life insurance policy, you can!

This article glosses over a key difference between term and permanent life insurance. With term, you are renting the death benefit for a period of time (the term) and in a permanent policy you own it up to a certain age. There are many variables that contribute to how a permanent life insurance policy works and not all permanent policies are the same. This is why you should talk to an advisor that you trust will educate you on your options.

As we grow older and become more successful our needs change. What will also change is the value life insurance plays in your life. When you start a family you’re probably not thinking about a cost-effective and flexible way to fund your long term care needs. You’re probably not thinking about how much money will be left on the table when your retirement plan is taxed. My advice is to get educated on the value of term and permanent life insurance for all the risks out there and get a good understanding of how you want to live your life. I talk to clients who don’t mind relying on family members or the government to take care of their long term care needs. I also talk with clients who cannot fathom having their family or the government being responsible for their care. Life insurance is not a one size fits all solution and it works best when you are prepared.

Author: John Burbank

The Lyman Group

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